Alibaba may have taken better care of its big IPO investors than Facebook did, but retail investors are already being hurt by the same market force that hampered Facebook shares in their early months of public trading. In Wall Street-speak, it’s called an overhang.
Company insiders and early investors still own nearly all of Alibaba’s stock — 85.2%, according to the company’s proxy filed this week — and that supply will overhang the market until restrictions on selling it expire. Alibaba’s four largest shareholders — namely SoftBank, Yahoo, Alibaba Chairman Jack Ma and Vice Chairman Joe Tsai — have agreed to 12-month lock-ups on their holdings, which now total 58% of the company’s outstanding shares.
Yet a group of insiders and other executives that hold another 105 million shares, or 4.3% of the total, can begin selling in six months. That group includes members of Alibaba’s controlling partnership, as well as employees of Alipay (spun off from Alibaba several years ago) and other holders of stock.
What’s more, certain institutional shareholders who own a whopping 315.8 million shares, or about 12% of Alibaba’s equity, also have lock-ups that expire in six months. In all, insiders who hold more than 1.8 billion shares of China’s No. 1 Internet retailer will be free to start selling one year from the company’s IPO.